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Service firms have high overhead costs which are difficult to assign to individual services. To bring transparency to their value chain, they need costing approaches that help them find their own improvements. Markus B. Baum explores current theory and practice of value chain approaches and cost accounting to develop a costing approach with a suitable instrument for the allocation of fixed and overhead costs for a service firm. He describes the service business costing (SBC) approach. This hybrid-costing model has a hierarchical structure in terms of consolidation and allocates cost and revenues on the lowest hierarchical level possible to ensure that all costs and income are assigned to activities from which they originated.

Inhaltsverzeichnis

Frontmatter

1. Introduction

The global economic system is divided into the primary sector (agriculture), secondary sector (industry sector) and tertiary sector (services). This last sector especially has experienced a significant change in the past and continues to grow.
Markus B. Baum

2. Theoretical background and literature review

This sections presents, in a manner similar to a SWOT analysis, the theoretical background and literature review of the value chain analysis approach and different cost accounting approaches. For each approach, a brief overview and summary of the approach is provided, which will be discussed in the following paragraphs. The strengths and weaknesses of the approach, and the advantages and disadvantages for the consulting industry, will be also explained.
Markus B. Baum

3. Methodology

The research strategy consists of the selection of the research design and the systematic plan of required actions. The strategy involves making a decision regarding the method of data collection and analysis (Creswell 2009) and must fit to the research study.
Markus B. Baum

4. Action research:value chain analysis of the firm

To set up a value chain for the company, and further understand the main issues in the value chain, the researcher follows the following course of action, creating the action research portion of the study.
Markus B. Baum

5. Design and development of a costing approach

The overall objective of a cost accounting model is to inform the management of a consulting firm about the important features and give other stakeholders useful details (needs of decision makers) (Martinson 1994, Lanen et al. 2008). The new model must cover all the costs of the company. Therefore, the costing model must fit to the special issues and situations of a consulting firm. It must cover typical project business and organisational transparency in terms of overhead cost (corporate functions). The entire value chain needs to be covered. Furthermore, the implantation of the costing model must be economically efficient (benefits exceed its costs) and should reduce the complexity of current models.
Markus B. Baum

6. Conclusion and recommendation

Professional service firms have high overhead costs which are difficult to assign to individual service products (projects). High economic pressure on both the cost and revenue sides (Cooper et al. 1996), and the high power of the customer, makes it necessary to understand exactly which functions and operations within the individual organization are value-added, which may not be, and how cost and income can be dedicated to maximizing profit (Kamakura et al. 2002). In summary, professional service firms need costing approaches that bring transparency to their value chain, which helps them find their own improvements in turn.
Markus B. Baum

Backmatter

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